Author Archive for preynolds

Thoughts on the False Bottom

Published
by
preynolds
on June 2, 2009
in Market Conditions
. 147 Comments

 In many parts of the country, there’s a palpable sense of relief these days. In places like Los Angeles and San Diego, home sales activity is on the rise, and prices, while maybe not on the increase, are not dropping like a stone .

So have we hit bottom yet?

The answer may be yes. But after the first bottom, according to Zillow, there may be other bottoms to come. That’s because an awful lot of us have been holding off on putting our homes on the market. But the moment there is a glimmer of light, almost one-third of homeowners (31 percent) told Zillow that they would throw their homes on the market within a year.  In short, quite a few of us are itching to move and the only thing holding us back is the prospect of having to pay the bank tens of thousands of dollars at closing.

However, there’s something the Zillow survey seems to have missed. Almost 70 percent of homeowners said they were NOT likely to sell their homes within a year if the market were to improve. Add to this the fact that many of the home sellers will also be home buyers. Like it or not, homeowning will always have a special allure to most Americans. Call me optimistic, but I think the idea of a “shadow inventory” may be more of a fear than a reality. Many of us in a slower economy may have fewer places to go these days, and fewer reasons to move.

Which means to me that the bottom we may be hitting in many areas is the actual  bottom. Now wouldn’t that be a relief

Evaluating the Next “Hot Neighborhood”

Published
by
preynolds
on May 19, 2009
in Home Buying
. 207 Comments

When is an up-and-coming neighborhood truly coming up, and when is it all just hype?

I asked myself this question last weekend, while touring open houses in a working-class neighborhood of Boston that has recently been touted as the next great thing in real estate investment. East Boston, in fact, has gained so much attention that it even got a write-up in the London Financial Times .

 “It’s a cool little neighborhood, full of young, hard-working, motivated people from diverse backgrounds, great for entry-level buyers and you can get a house with some good appreciation,” said one realtor quoted in the Financial Times article.

The main attraction for Eastie, as the neighborhood is affectionately called by its residents, is it’s cheapness combined with water views and proximity to downtown Boston. The disadvantages of the neighborhood are not few, and include its relative isolation (East Boston is separated from downtown by water. In order to get downtown or any other part of Boston, you must take the subway or drive through a long, tolled tunnel). Other disadvantages include the neighborhoods’s proximity to the noisy comings and goings of jumbo jets at Logan Airport, as well as hardscrabble housing stock with small rooms, low ceilings and non-existent yards.

So is the real estate buzz in East Boston and neighborhoods like it, real? Or is it just hype?

Here’s my take:  Neighborhoods appreciate in value when there is something of value in the neighborhood to appreciate. That explains why abandoned but still elegant brick rowhouses in Boston’s South End were eventually reclaimed and rehabilitated and why the Back Bay, with its gracious brownstone mansions, has always been a pricey place to live. If a neighborhood is ever to become “hot,” in my opinion, it has to have:

1) Great housing stock that has been ignored or neglected. This means well-built stylish homes, with high ceilings, big windows, architectural detail or some other overwhelmingly appealing feature.
2) Accessibility — in all forms, from public and private transit to walking and biking. Accessibility is especially important in areas where the housing stock is not particularly attractive. For example, many areas of Cambridge and Boston’s North End are filled with tiny little walk-ups in so-so buildings, but both areas have proven sound real estate investments and “hot” neighborhoods to live because they are easily accessible by subway, car, bike, or foot.

That’s it. If the area doesn’t have these two factors in place, in my book, it will never be the next great real estate investment. East Boston, charming as it may be, doesn’t have these things.  

And what about the up-and-coming neighborhood that you’re thinking of buying into?

Negotiating With A Pre-Approval Letter

Published
by
preynolds
on May 5, 2009
in Home Buying and Home Selling
. 28 Comments

Start searching for a home, and the first thing you’ll hear from your realtor is how you should get a pre-approval letter from a bank.

The pre-approval letter is supposed to tell you and the seller of a home that a bank would be willing to lend up to a certain amount on the purchase of a home. More than just a pre-qualifying letter (which can usually be handled in about a five-minute phone conversation with your lender), a pre-approval letter goes an extra step.  The bank will actually ask for documentation confirming your employment and the source of your down payment, along with other aspects of your financial circumstances. In a pre-qualification letter, the bank mostly just accepts whatever you tell them.

Now lets be honest. Pre-approval letters are mostly for the benefit of realtors. Realtors feel better showing homes to clients with pre-approval letters because they feel less like they’re wasting their time. Banks, however, make no guarantees, and by now, both buyers and sellers know that. Just because a buyer may have a piece of paper stating they are “pre-approved” does not mean he or she will necessarily get  financing once an offer has been made and accepted. In fact, after a diligent search, one couple I know was denied financing for a home — even though they had received a pre-approval letter from the bank just a few weeks earlier. Nothing in their circumstances had changed.

How can you make a pre-approval letter actually mean something? You can’t really. But you can try to have your letter written in such a way that you’ll obtain the best price for any home you’re making an offer on.  Here’s what the strategists say:

1) Have the pre-approval letter match your offering price and not more. If a seller sees you are approved to offer more, they may reject your offer and hold out for a higher bid.

2) Try submitting a “low” low-ball offer along with a preapproval letter for a slightly higher amount. The amount in your preapproval is your “real” low-ball price. The seller will likely counter with your maximum price, which is really what you were aiming for in the first place. If you’re lucky, the seller may even accept your originial lowball offer.

3) Get your preapproval letter from a recognized local lender. Both listing agents and sellers will feel more comfortable with a trusted lender, rather than a fly-by-night online or long-distance operation that may change the terms of the loan, threatening the deal altogether.

4) Try having your preapproval letter state that you are preapproved to buy a certain house, rather than a certain amount. In other words, you are preapproved to buy 1 Oak Lane, MSL # xxxxx. According to some realtors, this implies that you have been approved to pay full asking price, but still provides for more flexibility during negotiations.

Open Houses Get Austere

Published
by
preynolds
on April 28, 2009
in Home Selling and Market Conditions
. 4 Comments

Is it just our imagination, or are open houses becoming more serious affairs than in years past?

We’ve been out and about this spring and we’ve noticed something about open houses: they’re more somber, business-like, efficient. Gone are the chocolate chip cookies. Gone are the scented candles. Brokers don’t even seem to be in the mood to chat us up anymore.

What’s going on? Has a moribund housing market brought brokers back down to earth? Is it that brokers can no longer afford to spring for cookies? Or have brokers just given up? Oddly enough, the open houses that we’ve been to this year have been well attended. But brokers no longer seem so intent on finding out which broker we’re working with and getting us to sign the sign-in sheet. We think they’re a little depressed.

But there’s an up side to all this. The new open house austerity feels relaxing to buyers. During the boom years, open houses seemed like high-stake affairs where a house could get sold in a day (if not an hour). Bidding wars were common. Buyers and brokers both were tied up in knots. These days, no one has big expectations of a quick sale. So forget the scented candles and cookies. These days, it’s the essentials that count — the right price, the right location, a well-maintained home. And that’s just the way it should be.

In Some Areas, Condos Gain on Single Families

Published
by
preynolds
on April 21, 2009
in Market Conditions and Progressive Trends
. 296 Comments

Is the American ideal of the single-family home going the way of trans-fat, plastic bags and the Hummer?

In New England at least, something seems to be driving up the value of condos relative to that of single-family homes. So far this year, the median single-family home price in Massachusetts is about $34,000 more than the median condo price, according to the Warren Group, which specializes in analyzing market data in Massachusetts, Rhode Island and Connecticut. Compare that to 2005 when the median price for a single-family home was $72,000 more than a condo.

The data involves just a few recent years, is highly local and still pretty sketchy, but if this really IS a trend, why is it happening?

Certainly New England is different from other areas of the country, like Florida, where speculative condos flooded the market before everything crashed. In New England things have been more restrained. Speculative building was held in check by the area’s topography, geography and zoning laws. But what else? Here are a few guesses:

  • As more first-time buyers enter the market, they buy lower-cost condos first, boosting prices of condos relative to that of single-family homes.
  • In the Boston area, foreclosures seem to be concentrated in outlying suburban areas with more single-family homes. Alternatively, dense and fashionable urban areas located close to universities and public transportation —areas usually consisting of condos — have retained value and experienced fewer foreclosures, keeping prices higher.

But does the New England experience suggest anything about the future of condos in general?

Maybe. A growing senior population in the market for a maintenance-free life, may eventually boost condo sales and prices relative to single-family homes across the country. A growing immigrant population used to tighter living quarters, urban life, and multi-family dwellings, may also boost demand for condos. Certainly young professionals may prefer condos in the city if they can avoid a long commute.

What’s happening with condos in your neck of the woods? Could the condominium replace the single-family home as the housing option of choice?

Renting Becomes Respectable

Published
by
preynolds
on April 14, 2009
in Market Conditions and Progressive Trends
. 8 Comments

When all the dust has settled in the housing market and the last at-risk home has finally fallen to foreclosure, the real estate market as we have known it will have changed.

And one of the biggest changes: renters will finally get a little respect.

Already the signs of a renting revolution are in the air. Last year, a survey by The National Apartment Association found that 67 percent of renters had no immediate plans to buy a home. In fact, according to the NAA, occupancy rates in rental housing last year saw the largest annual increase since 1965. There are now more rental housing units across the country then ever — about 34.7 million units sheltering about 83 million people.

“We’re seeing more dramatic growth in renters and a decline in the number of owners,” William C. Apgar, of the Joint Center for Housing Studies at Harvard University told the Post Chronicle. “People are beginning to understand that homeownership can be a very risky venture.”

According to census data, about 67.8 percent of Americans owned their own homes in 2008, compared to a record high of 69.1 percent two years ago. Economists and housing experts predict that once we’ve pulled out of troubled economic times, only about 50 percent of us will own our own homes. In support of this prediction, census data showed that 32.3 percent of Americans were renting homes last year, up from 30.9 in 2005.

As more of us happily turn to lifetime renting, the experience of renting is likely to change dramatically.

Right now, according to Eric Belsky, the executive director of Harvard’s Joint Center for Housing Studies, America’s rental properties  are in a sad state — increasingly unaffordable, rundown, and concentrated in blighted neighborhoods. But as more Americans rent for longer and longer periods of time, they will no longer settle for second-rate product. Tomorrow’s renters will demand high-quality properties with the amenities and updates that they would expect of an owned home. Forget cheap carpets and formica countertops. More renters will rent in upscale neighborhoods, and more will expect the sorts of updates that are more common in owned homes — hardwood floors and granite countertops, for instance. More landlords may permit renovation and changes to their property, including painting walls colors and hanging pictures. Some renters may even seek longer-term Euro-style leases of three-to-five years, with the ability to bring their own modular kitchen along to their new digs. Expect new lease options and a much wider assortment of housing choices. Look for landlords to put a new priority on maintaining their properties in an effort to compete for better tenants who will be looking for better product.

In the very near future, renting may be a far more empowering and attractive experience than it is today.

Where You’ll Live in the Age after Oil

Published
by
preynolds
on April 7, 2009
in Progressive Trends and Sustainable Living
. 152 Comments

What will our communities look like 20, 30, 40 years from now?

According to author and journalist James Howard Kunstler, a whole lot different than they do today.

Home Depot and Target? Gone. Strip malls and suburban parking lots? Abandoned. Gated communities of gleaming McMansions? Uh… just empty weed-strewn lots — or slums.

 Instead of our current suburban sprawl, most Americans will live in a real city or in a small town where they can farm in their front yards, buy from local artisans and cottage industries, hoof it to work. In short, according to Kunstler, author of “The Long Emergency,” we’ll be returning to the pre-industrial age. We’ll have no choice. We will be running out of oil. 

Oil, of course, powers not only our cars and heats and electrifies our homes, but also creates most of the technology, including computer technology, that dominates our lives. Without oil, large factory farms dependent on heavy machinery, petroleum-based fertilizers and pesticides disappear. Without oil, manufacturing disappears, along with the huge global distribution networks that allowed Walmart and Costco to sweep the country.  Even alternative energy sources, like solar power, is rendered impotent, since it actually takes petroleum-based technologies to manufacture things like solar panels and windmill parts. Once world oil production peaks (and many experts think it did so in 2005) life is going to take on a whole new homespun cast. Unless someone discovers a miracle energy source. And fast.

So in light of all this, where will YOU be leaving a couple of decades down the road? Well, forget surburbia.  And forget major metropolitan areas like New York or Chicago or Los Angeles. Without oil, they’re just too expensive to run. (Think of all the electricity it takes to run those elevators in 40-story buildings.) Small towns with relatively dense and walkable town squares surrounded by productive agricultural countryside will be the most sensible place to call home. After all, you’re going to need to be able to walk (or maybe ride your horse) to do your business. And you’ll be growing your own food, too. Those living in cities will live in much smaller ones featuring dense multi-family housing of less than four or five stories. Forget globalization, localization is where the future lies.

Will Kunstler’s predictions come true or are these just the wacky rants of another doomsday sayer? I’d be a little more skeptical if Kunstler hadn’t accurately predicted today’s economic meltdown a few years back. And even without Kunstler, most housing experts agree that America’s housing stock is going to have to start looking more like the rest of the world’s. And that’s not a bad thing.

Realtor-Buyer Disconnect and How to Avoid It

Published
by
preynolds
on March 31, 2009
in Home Buying and Home Selling
. 131 Comments

Have you ever worked with a realtor, who just doesn’t “get” you?

If you don’t know what I mean, picture dating someone who doesn’t fit into the kind of life you envision for yourself.  Perhaps you’re a homebody who likes to cook and snuggle on the couch. But the guy you’re dating isn’t the nesting type and gets restless at home. Or perhaps you consider yourself an urban sophisticate in love with sidewalk cafes, independent boutiques and neighborhood ethnic restaurants. Well, the woman you’re dating likes suburbia, big box stores and Applebee’s.

In my case, I’m an urban soul, content to walk everywhere. I gave up owning a car a few years back in favor of Zipcar. But my realtor kept pushing me to condos that came with parking spaces, even though they were often $40-$50,000 more than condos without parking. Why? Resale value, he said. Even if I don’t own a car and intend to stay in my condo for years if not decades, he thought I should find a nice condo with parking. Kind of like mom who wants you to find a nice guy with a stable job, even though the unstable artist makes you feel more alive.

Sometimes, mismatched realtors don’t understand your lifestyle because they have a predictable life pattern stuck in their head: Buy a starter home. Move to a larger home. Start a family. Raise a family in a home with good school districts, etc. Or maybe they have lived this kind of life, and so it’s hard to relate to anyone who hasn’t.

So what’s the best way to fix the realtor-buyer disconnect?

For realtors, my advice is to focus less on resale and more on what your clients want, no matter how insane it may seem. If you can’t fathom why a client would want a huge McMansion stuck in the middle of nowhere, perhaps it’s better to be honest and point your clients to some realtor who can.

For buyers, my advice is to go with a realtor who reflects your demographic. Someone who’s about your age with a lifestyle similar to your own will inherently understand why you want to live on a ground floor when most people want an upper floor, or why you want an older building with character rather than a modern complex. If you’re an artist, find a realtor who specializes in finding homes for artists. If you’re an urban pioneer, find a realtor who is an urban pioneer himself. You won’t have to convince your realtor that your lifestyle needs trump resale value. And just like your best chance of meeting a nice companion often lie with friends who have similar interests and lifestyles, so does your best chance of finding the right realtor. Get recommendations from like-minded friends.

Finding the right realtor isn’t easy, but you shouldn’t have to live through months of frustration and disappointment hoping that one day, your realtor will finally understand you.

Musings on Touching Bottom

Published
by
preynolds
on March 24, 2009
in Home Buying and Market Conditions
. 25 Comments

Last week, the New York Times ran an article entitled “Has the Economy Hit Bottom Yet?”

One of the economists cited in the article said that as far as housing prices go, you can say we’ve hit bottom when a young couple earning two modest incomes can afford to buy  a two- or three-bedroom starter home in a middle-income neighborhood in their city. 

An interesting measure, but is it realistic?

In many midwestern cities in the United States, a couple of modest incomes is truly all it takes. But in my experience on the East and West Coasts in the last 30 years, this is no longer a realistic baseline measure in our changed economy.  Yes, my parents were able to afford a three-bedroom Los Angeles starter home on two modest salaries back in the mid-60s, but that was about the last time a couple of “modest” salaries could get you anywhere near a house in L.A.  That’s not just because home prices have gone up, but because real income has stayed absolutely flat since about 1973 while education and healthcare costs have skyrocketed. Most families have tried to keep up by adding a second wage earner and by borrowing more heavily to get into a home. A lot of homebuyers have compensated by buying smaller condos as their “starter homes.” But the cold hard reality is that raging income inequality  has a few of us making a whole lot more (read the executives over at AIG) and many more of us making a whole lot less. And that has forever changed the homeownership model of a nice three-bedroom starter home bought and paid for on two modest incomes. (Incidentally, back in the 1960s, this was doable on ONE modest income.)

Don’t forget, after all, that a young couple making $25,000 each will likely have hefty student loans to repay, as well as steep healthcare premiums to foot each month. Years ago, their parents buying their first home wouldn’t have had these costs. In order to compensate for increased daycare, healthcare and education costs at a stagnant salary, a home’s price would practically have to drop to what it might have been in 1973, and that’s just not going to happen.

Will the median household income of about $50,000 a year ever buy the American Dream again? It’s my guess that in many large American cities, even after we hit bottom, those days may be over — unless something remarkable happens to make the rest of life affordable for families.

SOS to Artists: Save Our Abandoned Neighborhoods!

Published
by
preynolds
on March 17, 2009
in Market Conditions and Progressive Trends
. 76 Comments

As someone who has more than just a passing interest in the arts, I was heartened to read about artists doing what they have done for ages — rescuing dilapidated neighborhoods. Recently in the New York Times, author Toby Barlow recounted how a lot of outsiders (including Barlow himself) are moving into Detroit, buying up cheap, sometimes abandoned or foreclosed homes. These outsiders are artists priced out of more expensive artist enclaves in cities like New York, Los Angeles or San Francisco. They’re in search of a little room to spread out — a home that has space for maybe a painting or writing studio — and costs low enough to allow a low-income artist to survive, create, and perhaps even thrive.

Does this phenomenon suggest a path out of the current housing crisis? Maybe so. Just look at Paducah, Kentucky. This tiny little town of 27,000 bordering Illinois and Kentucky, started an artist relocation program back in 2001 when it became apparent that the town was in crisis. Crime was up, especially drug-dealing. People were moving out. Houses were being abandoned. Whole sections of town were rapidly falling into disrepair. The town put together a whole package of financial incentives to market to artists just scrapping by in other high-cost locales, including 100 percent financing, low-interest lows, and even architectural services. The town bought advertisements in art magazines and newspapers across the country, and pretty soon, the artists started showing up. They were able to snap up Victorian homes for less than $20,000 and whip them into shape at a low-cost. More than 70 artists have moved to Paducah to date.

Considering that many towns now have precisely the low-cost-housing artists need, why not take advantage of it by instituting a well-focused recruiting program specifically targeted at the creative class? Artists (including writers, filmmakers, designers, architects and others) have flexibility in where they live. Many can do their jobs just as well in Detroit or Cleveland as they can in New York or Los Angeles. As more choose to move into troubled regions, they can work the transformative magic they’ve worked in Paducah. Paducah now has a cultural district, art walks, regular arts events, and continued infrastructure investment that have made the tiny little town a regional tourist destination.

Abandoned neighborhoods are a huge opportunity to infuse more towns and cities with a vibrant cultural life. Let’s take advantage and remake our neighborhoods while we can.